Tech Brew Ride Home - Fri. 01/29 – Robinhood Is Now The Crazy Stock Story

Starting point is 00:00:00 On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the Tech Meme Right Home for Friday, January 29th, 2021. I'm Brian McCullough. Today, what once was a story about GameStop and Reddit has suddenly become a story primarily about Robin Hood. I'll catch you up. Everyone wants in on the newsletter

Starting point is 00:00:50 game all of the sudden. Hyundai is having second thoughts about building an Apple car all of the sudden and a special Stonks-themed edition of the weekend long read suggestions. Here's what you miss today in the world of tech. in the only story anyone cares about right now, everything has now moved on to being about Robin Hood. Robin Hood said it would allow limited buys on restricted stocks today, Friday, and they insisted that halting purchases like it did on specific stocks was a risk management decision. It was not a response to any sort of outside pressure. Exactly what they're talking about might be elucidated by this news. Robin Hood also announced that it has raised an emergency infusion of over $1 billion from

Starting point is 00:01:38 existing investors after facing an onslaught of demands on its cash amid the stock market frenzy, quoting the New York Times. On Thursday, Robin Hood was forced to stop customers from buying a number of stocks like GameStop that were heavily traded this week to continue operating. It drew on a line of credit from six banks, amounting to between $500 million and $600 million to meet higher margin or lending. requirements from its central clearing facility for stock trades, known as the Depository Trust and Clearing Corporation. Robin Hood still needed more cash quickly to ensure that it didn't have

Starting point is 00:02:13 to place further limits on customer trading. The two people briefed on the situation who insisted on remaining anonymous because the negotiations were confidential. Robin Hood, which is privately held, contacted several of its investors, including the venture capital firms, Sequoia Capital and Ribbett Capital, who came together on Thursday night to offer the emergency funding five people involved in the negotiation said, end quote. So I reached out to some Wall Street friends to explain this to me, and I'm not sure I fully understood it, but they said that the issue is basically this. As you heard, there's this thing called the Depository Trust and Clearing Corporation. And as a broker, Robin Hood doesn't actually execute any stock orders you make on their platform. When you buy or

Starting point is 00:02:55 sell a stock, that trade doesn't actually settle until T plus two. Two days later. The DTCCC, is the one that does the matching of buying and sellers, but they also require someone like Robin Hood to put up collateral to reduce their credit risk. So, even though the money doesn't actually execute until T plus 2, Robin Hood still has to pony up with some cash of their own. Robin Hood says their own cash was being drained in this matter because, you know, like we said yesterday, something like 65% of their users were all trying to buy these particular stocks. all at once. This is a tweet thread from a dude named Silent Cal, quote, Robin Hood offered to open up stock market investing more broadly. They succeeded, clearly. But

Starting point is 00:03:43 the regulations didn't change. There are still pro-Wall Street pro-incumbent rules in place and capital requirements. It's one of the most highly regulated industries in our nation. So AOC is right to ask how it can be that Robin Hood stopped its clients from buying certain securities. And what she'll find is that the reason is that Dodd-Frank requires brokers like Robin Hood to post-collateral to cover their clients' trading risk pre-settlement. And it isn't the Fed or SEC who sets the rules. It's the Wall Street-owned central clearing entity itself, DTCC, that makes its own rules. So when the retail masses decided to squeeze the short sellers in the middle of crushing them, it was government regulations which tripped them up, end quote. So again, if I understand it correctly,

Starting point is 00:04:28 It's a combination of regulations designed to prevent another meltdown, like we saw during the housing crisis, combined with a for-profit entity, the DTCC, which is owned by Wall Street banks. And the DTCC is basically doing the equivalent of a margin call on Robin Hood. Just this morning, the SEC announced that it will closely review actions taken by regulated entities that may have disadvantaged investors. That's a quote, by the way, from the SEC. What else can I tell you? Google deleted around 100,000 of those one-star reviews for the Robin Hood app on the Play Store, bringing Robin Hood's rating back up to four stars on the Play Store. Facebook took down a Robin Hood stock traders group with 157,000 users. A notification said that the group had violated policies on, quote, adult sexual exploitation, end quote, which, I don't know. Robin Hood is telling some customers that it may close out some of their positions as part of measures it is taking to reduce account. risk, but at the same time, Robin Hood also insists that it hasn't proactively sold shares of GameStop,

Starting point is 00:05:34 AMC, or any of those other buzzworthy stocks without user permission. And it's not just stocks, by the way, Dogecoin? Remember that? Apparently, it has spiked more than 800% this week, and so Robin Hood has been forced to halt instant deposits for crypto purchases and has restricted trading in cryptocurrencies today. Lovely. I had an extensive conversation about substack with someone recently who is very bearish on them, and I'm not saying that gleefully because I'm friendly with the substack guys and I like them very much. But basically this person said, Substack's problem is distribution. They're a tool that does everything for the writer except get them an audience. And all the audience growing tools are owned by others.

Starting point is 00:06:25 So case and point. Sources are telling the New York Times that Facebook is developing newsletter tools for journalists and writers, including tools to help build followers, curate email lists, and offer paid subscriptions. The effort would be part of the Facebook journalism project, which is managed in New York, the people said. Mark Zuckerberg, Facebook's chief executive, is supportive of the initiative, said the people, and has encouraged a team of dozens of engineers to pursue it. The newsletter project is part of Facebook's plan to provide more legitimate. news sources. The company has spent the past few years building up the news tab a specific destination inside of Facebook's app that displays stories from publishers like the Washington Post, Bloomberg, the Wall Street Journal, and the New York Times. It has also pledged to donate more than $100 million

Starting point is 00:07:10 to publishers, an effort to rejuvenate the ailing local news industry, end quote. As Simon Owens tweeted, quote, pretty safe to say at this point that newsletters are the shiny new object that all the platforms are going to chase, which I guess, is better than every platform rolling out stories, a tool that nobody wants, end quote. Sources are telling Reuters that Hyundai executives are divided over a potential tie-up with Apple to produce that rumored Apple car. Some executives inside Hyundai are raising concerns about becoming just another contract manufacturer, quote. In an earnings call on Tuesday in which it reported its best quarterly profit in over three years, Hyundai did not give any updates

Starting point is 00:07:59 on talks with Apple or indicate whether they remain active. Quote, we are agonizing over how to do it, whether it is good to do it or not, said a Hyundai executive aware of the internal discussions on the tie-up with Apple. We are not a company which manufactures cars for others. It is not like working with Apple would always produce great results, end quote. Few details are known about the talks between the two companies, but people close to the discussions say the options considered included Hyundai or Kia acting as a manufacturer for vehicles designed by Apple and sold under its powerful, ubiquitous brand. Hyundai is traditionally known for its reluctance to work with outsiders, making engines,

Starting point is 00:08:35 transmissions, and even its own steel in-house under its vertically integrated supply chain as South Korea's second largest conglomerate. Although shares in Kia and Hyundai have surged because of the talks, there is considerable opposition to becoming an Apple contract manufacturer, which could hold up any deal with the American giant, these people said. It really is difficult for Hyundai to open up, this person said, adding that the South Korean company would likely have to replace some executives to avoid a culture clash under any partnership with Apple. Quote, Apple is the boss. They do their marketing. They do their products. They do their brand. Hyundai is also the boss. That does not really work, the person said. The South Korean car manufacturer,

Starting point is 00:09:16 however, has access capacity. Contract manufacturing would help it secure production volume, end quote. And I would add that money talks and Apple has more money than anybody. And people have done worse than hitching their wagons to the Apple brand halo, just ask singular. And just a quick note, Coinbase has officially announced its intention to become a public company via direct listing. So at this point, basically all of the biggest unicorns of this generation are public, I guess, if Coinbase hits public markets. And now that Airbnb is out, who is left, really? Roblox, I suppose. And I noted this from CNBC, which after this week, you know, who knows anymore. Eyebrows raised emoji. Quote,

Starting point is 00:10:08 Roblox has postponed plans to go public because the U.S. Securities and Exchange Commission's scrutiny of how the video game platform recognizes revenue in its finances, according to a memo the company sent to employees on Thursday. The delay is a setback for one of the most eagerly anticipated U.S. public market debuts of 2021. The company had said in a regulatory filing earlier this month that it was aiming to list shares on the New York Stock Exchange in February. The SEC has reservations over the way in which Roeux Roblox recognizes revenue from the sale of its currency, Robux, on its platform, according to the memo seen by Reuters. Players use Robux in the game to buy a mix of durable goods, which

Starting point is 00:10:46 lasts for a period of time, and consumable goods, which are used immediately. Roblox has looked to treat all the revenue the same and amortize it over the duration of its paying user accounts, which is around two years. The SEC wants Roblox to be more specific and recognize revenue on consumable products as they are consumed, while the durable services will still be recognized over the life of the Roblox user, the memo said, end quote. Time for the weekend long read's suggestions, and as I said, I think you'll recognize a sort of theme this week, a loose theme, but a theme nonetheless. First up, as I said yesterday, I actually have a long history as a dweller in stock-based message boards and similar environs.

Starting point is 00:11:34 That's why I was the proud owner of 30 shares of Netflix stock all the way back in 2002. No, I do not still own them because I sold them like 15 years ago because I'm an idiot, and I thought that 3xing was as good a result as I could possibly hope for. Anyway, if you want some color about what this is like, about the real people, the real Redditors who have been on the Wall Street Betts subreddit, check out this first piece from CNN with stories like this. quote, at his retail job in an auto parts store in Missouri, Vanover makes around $35,000 a year. But on Wednesday, he found himself a paper millionaire.

Starting point is 00:12:13 His Robin Hood account exceeded $1 million, according to screenshots he provided, but he hadn't cashed out yet. For months, Vanover had been following GameStop as a value play, posting his thoughts on Wall Street bets along the way. This week, Vanover was off from work, quarantining after a co-worker contracted COVID-19, but now thinks he won't return to his old job. job, quote, I know I'm going to do two weeks notice, he said with a nervous laugh, so I'll be nice about it. Van Over says he plans to help his parents with their mortgage and he intends to

Starting point is 00:12:43 keep investing in options, end quote. There are also horror stories in this piece as well of people losing all their money because they got tangled up on Wall Street bets. The one time I will ever do this, I'm going to offer you some investment advice right now. Never mess with options. I've never once in 20 years of investing touched options or shorted a stock because I think it's too dangerous to do both. Take that for what it's worth. Next, the guy who spearheaded the GME short squeeze on Wall Street bets made a video that I found. It's from five months ago where he just laid out the entire plan, and it's kind of worked out exactly like he described it. I've got a link to the video in the show notes because

Starting point is 00:13:25 Yolo trading aside, I kind of found it fascinating. His analysis and the case he makes for the ongoing relevance of physical game retailing, stores like GameStop is actually very well done. And if you want even more color, check out this Bloomberg piece looking at how penny stocks can blow up on internet forums like this. Quote, Moneyman 223 was a prominent voice throughout, imploring fellow members to jump in before the stock exploded. Get in or regret not getting in, the Moneyman posted early January 14th a day after another stock to its member had tagged Blue Sphere as a clear winner from the Democrats' climate change agenda. Late the next day, the final session of trading before the long weekend,

Starting point is 00:14:07 Moneyman 2-2-3 was prodding again. Not too late for you fools to still get in. Then a character named, Buy Low Sell High, declared, quote, have a great weekend, fellow future millionaires, and quote, Blue Sphere soared as advertised on January 19th. By the end of the day, it was up 451%

Starting point is 00:14:25 having risen from six-tenths of a penny to over three cents. roughly two billion shares traded that day. Staggering, and yet not altogether abnormal volume in a burgeoning new age of penny stock speculation. The chat forum post came in fast and furious as the stock soared. Incredible day, everyone. We are going to be filthy rich together, and congrats to everyone who took the risk and believed in yourself, end quote. Again, all of that is very familiar to me. Reminds me of my days back on the Netflix message boards, the guru there, who turned me on to Netflix early, was a dude whose handle was shatterer of words. I've never forgotten.

Starting point is 00:15:04 Sow, we called him. Don't know what happened to him, but it also reminds me of that scene in the movie Wall Street. You know, Blue Horseshoe loves Anacott Steel. Next, someone on Twitter recently said that if we just legalized internet gambling, maybe we could satiate everyone's degenerate tendencies away from things like stocks. Check out the New York Times piece about how when sports got shut down at the beginning of the pandemic, U.S. gamblers fiending for a fix started gambling on obscure Russian ping pong tournaments. And the funny thing is, all these months later, they haven't stopped. This is tangentially related, but I've told you before my admiration for how the cash app by Square has become a monster in recent years.

Starting point is 00:15:50 Yes, they let you trade things like crypto too, but I'm specifically recommending this. Newsletter essay titled, Cash App is King because it lays out the whole unit economics and business model that has made Cash App so successful. And we were already talking about the bubble building around Internet stocks, especially Internet IPOs, but also SaaS stocks and FinTech stocks. One of those great finance Twitter dudes that I follow is irreverent investor. Check out his essay titled, Can Growth Go Out of Style? Can growth stocks really ever truly go out of style? Yes, they can. And he's got tons of historical examples to explain how this can happen when a stock gets ahead of its natural growth curve. He uses the exact example that I've mentioned several times on the show before of when Amazon fell 95% from its highs of the dot-com bubble down to $5 a share. Quote, Amazon stock fell from a peak of $113 to a low of $5.51. That means that

Starting point is 00:16:52 from the peak, it got cut in half, then it got cut in half again, and then it got cut in half a third time, and then you guessed it, got cut in half again, and then it lost another 22% for good measure. So the next time you see somebody say, if you invested $10,000 in Amazon's IPO, you can safely dismiss the second part of their statement. And as a reminder, Amazon's penetration into our lives and its March to Domination continued all the while. And as a reminder, Amazon's penetration into our lives and its March to Domination continued all the while. By the time Amazon made another all-time high, 10 years had passed, and it had transformed itself into a gigantic business, end quote. Yeah, that's the point. What people forget about investing is the notion of time horizons. Yes, if you held on to Amazon the whole time, then you were right and you were rewarded for being right. You won.

Starting point is 00:17:43 But for 10 years, Amazon was a dead money stock. You can be right about something, but if you have to wait 10, maybe even 30 years, to be right, it can often be the same thing as being wrong. And finally, I'm not saying this is exactly related to all of that, but the final two pieces I'm recommending this weekend are about scams. One zero answers a question I've been asking myself for years. You know all those scammy sex-related comments on YouTube videos, things like My Hotmom.online and all that sort of thing? How exactly does that work? One-0 delves into the economics of spamming on YouTube comments. And finally, the New York Times asks, who's making all those spam phone calls we've been getting? Basically, they go all the way to the other end of the line to find out how spam calling works and who it works for.

Starting point is 00:18:41 So that's officially the last regular news episode of January. It has been a crazy month. Remember how we thought, who, 2020 is in the rearview mirror. Maybe things will settle down to a semblance of normalcy in the same. 2021? Yeah, well, remember when the story was about GameStop and not Robin Hood? That was only 72 hours ago. Remember the U.S. Capitol Riot? That was not 10 years ago. Like it feels, it was the beginning of the month. Remember the presidential inauguration? That was earlier this month. Remember Bean Dad? That was earlier this month, too. Anyway, so, right home plus subscribers, the first fruits of your investment in this

Starting point is 00:19:25 podcast should hit your feed sometime shortly after this particular episode post. The first gadget roundup episode. Also, check the title of the gadget roundup episode in your feeds. If I've done it right, you should see a special little thank you. Also, non-ride-home plus subscribers, since we've never done a gadget episode before, I will be posting a sampling of that episode over the weekend. Only about half of it. It'll cut off after 15 minutes or so. And hear the rest, you'll have to subscribe, which, of course, you can do at tech. Dot supercast.com. Tech. But still, wanted you to have at least a taste so you can get a sense of what those episodes

Starting point is 00:20:06 will be like should hit your feed tomorrow afternoon. Crazy, crazy week. Still dealing with internet here at home. Thank you for nothing. Spectrum. Talk to you on Monday, I hope. Let's roll a dice and play a little monopoly. What box is a letter you're going to land on in New Pennsylvania? Yeah. He's buying Anacott's deal.

Starting point is 00:20:33 Okay. The market opens tomorrow. I want you to buy 1,500 July 50 calls. You hear me? 1500. That's right. And start buying 1,000 share blocks and take up to $50. But it reaches 50.

Starting point is 00:20:50 Give that a little taste to your friends. Then I want you to call the Wall Street Chronicle, extension 1605. You tell the man, blue horseshoe loves Anacot Steel. You got that? The Wall Street Chronicle. All right. Congratulations, buddy. You scored. I'll catch it.

Starting point is 00:21:09 All right. Start buying Anacot Steel across the board. Use the offshore accounts. Keep it quiet.

Tech Brew Ride Home - Fri. 01/29 – Robinhood Is Now The Crazy Stock Story

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